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Business has changed over the years - that’s why we’re refreshing business protection to fit today’s small and medium sized enterprises.

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Business Protection

How trusts work

A trust is a legal arrangement that allows the owner of the insurance policy (the settlor) to gift the proceeds paid under claim to someone else (the beneficiaries). Writing a policy in trust means the money paid is usually free from inheritance tax.

By setting up a trust, the settlor gives the policy to the trustees. As a result, the trustees legally own the policy and look after it on the behalf of the beneficiaries. The trustees would then make a claim, and pay the proceeds to the beneficiaries.

Settlors can be people (such as business owners) or companies/limited liability partnerships.

The main benefits and disadvantages of writing business protection in trust

Benefits

There are three main benefits of writing business protection policies in trust:

  • 1. Control
    Writing the policies in trust means any claim paid doesn’t form part of the life insured’s estate, allowing the settlor to choose who receives the payment (such as a business partner). This is a vital part of business succession planning.
  • 2. The claim is paid faster
    Because the money doesn’t form part of the life insured’s estate, the money is paid faster (it doesn’t have to go through the usual probate processes).
  • 3. Could avoid inheritance tax
    Writing business protection in trust means any money paid under claim doesn’t form part of the life insured’s estate, usually leaving the proceeds free from inheritance tax.

Disadvantages

Writing Business Protection in trust has a number of clear advantages, although it’s important to also understand the limitations.

  • 1. Less flexibility
    Trusts can’t normally be cancelled or changed – so it’s really important clients understand this when nominating their beneficiaries. If clients want to cancel a policy written in trust, they will need permission from the trustees.
  • 2. Change of trustee contact details
    To ensure claims are paid as quickly as possible, it’s important the insurance provider is kept up-to-date with any change in contact details for the trustees. A delay in reaching the trustee would mean the claim isn’t paid as quickly.

How to set-up a trust

The settlor needs to complete and sign a trust deed (the legal document that establishes and governs the trust), which is also signed by the trustees and at least one witness (the beneficiaries don’t have to do anything). Your clients can use an LV= trust deed (or a bespoke form arranged by their solicitor) which should be sent back to us. We recommend your client arranges the trust during the application stage, ensuring their wishes are met if a claim is made.

The trust will end when the policy ends – this could be after a claim is paid or once the policy term has been reached.

Trusts can’t normally be cancelled or changed – so it’s really important clients understand this when nominating their beneficiaries.

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LV=, County Gates, Bournemouth, BH1 2NF, UK